What Family and Non-Family Businesses Can Learn from Each Other

This article was first published in the Economic Times on April 05, 2023, Co-authors: Navneet Bhatnagar, Sougata Ray; https://economictimes.indiatimes.com/news/company/corporate-trends/what-family-and-non-family-businesses-can-learn-from-each-other/articleshow/99276293.cms

Indian economy comprises business organisations belonging to diverse ownership categories. On one hand, these include the traditional family-owned firms, such as those owned by the Tatas, Godrejs, or Birlas. While on the other hand, there are non-family businesses that are owned by the state (ONGC or SAIL), or multi-national corporations (HUL or BATA), or have diversified set of owners (L&T or Infosys). Both the family and non-family businesses have had a track record of successes and failures. There are significant learnings that each of these categories of businesses can share with each other and benefit from.

Family-owned business is the dominant form of business organisation in India. Ranging from large industrial houses to medium and small enterprises, family businesses form the backbone of the Indian economy. Over 90% of all listed firms in India are family-owned businesses. There are several lessons that non-family businesses can learn from their family-owned peers:

1. Long-Term Orientation and Patient Capitalism: Known for their resilience, many Indian family businesses such as, the Tatas, Birlas, Burmans, and Murugappas, have survived for five generations or beyond. Their long-term orientation and patient capitalism helps them assign greater significance to long-term gains compared to short-term returns. Long-term orientation of family business facilitates radical innovations which require longer time horizons to fructify and earn profits. Globally, this phenomenon is observed in some of the most innovative family firms in the pharmaceutical industry like, Merck of Germany or the Swiss, Roche group. Patient capital investment provides for longer gestation periods and enables a family business to outperform competition in the long run, thereby helping it sustain longer. Businesses operating with a short-term perspective react to the emerging trends to earn a fast buck, often at the cost of long-term gains. On the other hand, research has shown that a family business with long-term orientation in its vision and strategy conducts extensive environmental scanning to anticipate long-term trends and prepares itself to take quick actions when opportunities emerge.

2. Strong Stakeholder Relationships: A set of strong stakeholder relationships is another characteristic that sets family businesses apart from their non-family peers. On account of personal engagement of family owners, family firms often have long-standing relationships with their suppliers, distributors, customers, and employees. Family businesses are also known for their community embeddedness and family identity. There is mutual trust and dependence on each of their stakeholder communities, which helps family businesses overcome challenges caused due to uncertainties in business environment. This strong stakeholder cooperation was amply visible during the pandemic times when many family businesses witnessed a quicker rebound to business operations and profits.

3. Family Values in Practice: Most important lesson that family businesses offer to their non-family peers is their strong roots in family values of custodianship. Being firmly rooted in family values helps family businesses develop shared vision and goals, define clear and cohesive purpose for being in the business, and values drive the policies and practices in the family business. Values provide a moral compass, inspire exceptional performance, and help family businesses achieve stability and maintain consistent behaviour. It helps them overcome adversities and guides them through ethical dilemmas in a constantly evolving business environment. For instance, in our qualitative research on ‘family values in practice,’ the house of Tatas and the Godrej group were found to command respect and committed stakeholders mainly due to their conduct rooted in a strong value system, which was passed on from one generation to another.

Family businesses can also learn several things from effectively managed non-family businesses:

1. Professionalism: Professionalism has two dimensions: organisational professionalism and occupational professionalism. Effectively managed and organised non-family businesses exhibit high levels of organisational professionalism, which entails clear hierarchy of authority and decision-making, standardised procedures, clear roles and responsibilities and assessment of executive performance. Occupational professionalism entails managerial conduct that adheres to principles, values, and ethics. While practicing occupational professionalism, managers of non-family firms exhibit self-discipline and gain collegial authority. Professionalism is intricately attached to an organisational culture of excellence and merit. Thus, family firms can enhance routines, managerial outcomes, control, and productivity if they imbibe professionalism.

2. Capability and Resource Orchestration: Another aspect that family businesses can learn from non-family peers is ‘capability orchestration for scalability.’ A firm's ability to orchestrate appropriate capabilities and resources required to achieve certain strategic objectives is critical to its success. Non-family firms are known to have effective capability orchestration because of a diverse and qualified workforce comprising professionals that come from different backgrounds. They can quickly garner resources and tap capabilities to create value for the customers and owners. Owing to their capabilities and resource orchestration skills, non-family firms can also quickly scale-up their operations. Family businesses that aim for growth can learn these from their non-family peers.

3. Decisiveness and Accountability: Well structured decision-making process, high quality of professional employees, clear evaluation rubric for key business problems and professional approach to dealing with management situations enhance the decisiveness of non-family businesses. They also have high levels of accountability for the targeted outcomes of executive decisions. If the desired outcomes are not achieved, they immediately adopt corrective measures. This ensures that they stay on course to achieve their strategic objectives. Family firms are often blamed for being indecisive and for poor accountability norms and practice. They can considerably benefit from adopting the decisiveness and accountability norms followed by non-family businesses.

Thus, both the family and non-family businesses can enhance their performance outcomes through their constant effort towards mutual learning.